NetApp takes Q4 hit but predicts turnaround in 2018

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NetApp CEO George Kurian

NetApp has reported yearly decline during the Q4 earnings call, though CEO George Kurian remains positive the company will return to moderated revenue growth in 2018.

Revenue for Q4 was $ 1.38 billion, down from the $ 1.425 billion mid-year estimations, as the company reported an $ 8 million loss. Q3 saw the company report a profit of $ 135 million, whereas Q4 2015 saw the team account for $ 153 million profit. Year-on-year annual figures were also down 9% to $ 5.6 billion, with profits also decreasing to $ 229 million from $ 560 million in 2015, a decrease of 59%. Although investors have not reacted positively to the news, the $ 842 million acquisition of Solidfire hit the books during the period, taking some of the light off the company’s performance.

“As we discussed last quarter, we’re making fundamental changes to return the Company to revenue growth with improved profitability, cash flow, and shareholder returns,” said Kurian. “To deliver on this commitment, we’re executing a comprehensive and sustained transformation.”

The company has been undertaking a wide-ranging transformation project in recent months, moving the focus away from the traditional portfolio, which declined roughly 40% year-on-year, and towards the strategic growth initiatives, which grew 21% year-on-year. The strategic initiatives now account for 53% of net product revenue.

Priorities for the business will continue to focus around the delivery of the strategic initiatives including cluster data ONTAP, branded E-Series and All-Flash-Arrays, as well as the introduction of the next generation of ONTAP in the coming weeks. The team claim the new offering will simplify customers IT transformations to modern data centres and hybrid cloud environments, while also giving the customer greater flexibility when it comes to engineered systems, software defined storage, or cloud.

Kurian stated during the call he expects another tough year for fiscal 2017, though the company should be in a position to turn the corner in fiscal 2018, prioritizing the hybrid cloud market, as well as streamlining costs within the organization.

“When I took over as CEO, NetApp was dealing with several internal challenges,” said Kurian. “We were late to the All-Flash-Array market. We were not prepared to assist our installed base of customers in migrating to clustered ONTAP, and we had limited traction in the hybrid cloud.

“Heading into fiscal year ’17, our momentum with customers is accelerating. Data is at the heart of our customers IT transformation efforts and this is where NetApp has a profoundly important role to play. Our strategic relevance to customer’s digital transformation roadmaps is evidenced by the growth of our strategic solutions. We’re making meaningful progress, but still have work ahead of us and remain focused on execution. I remain highly confident in NetApp’s potential.”

Under Kurian’s leadership, NetApp has seemingly been forced into a wide-ranging transformation project to remain relevant in current and future market conditions. By self-admission, NetApp was not ready for the cloud-orientated world, and too focused on legacy products; however the team have outlined the organization’s roadmap to drive the company back into the positive.

Firstly, the team are positioning the clustered ONTAP offerings, as well as SolidFire to reinforce the company’s position as a supplier of technology to the cloud, both service providers and enterprise organizations who are managing private cloud environments. Kurian claims the company leads the way for enterprise storage and data management technology in the open stack cloud deployments.

Within the hyper scale segment, the company reported healthy growth for product offerings which combine hyper scale and cloud computing environments. Kurian noted while it is early days, the company are making progress in carving out market share in the segment.

Finally, Kurian highlighted there are have been a number of examples throughout the year of companies transitioning data back to on premise platforms from public cloud environments. The team believe the current offering positions them well in the market to capture those workloads as they transition.

Although Kurian has put a positive spin on year-on-year declines, outlining in depth the company’s strategy to return to prominence within the newly defined market, the market has reacted slightly differently. Shares fell almost 7% in afterhours trading.